NYMEX Holdings and Evolution Markets have formed a consortium of some of the nation’s leading financial institutions to launch the Green Exchange, a commodities trading marketplace in which U.S.-based companies could buy and sell the right to emit carbon dioxide and other environmental pollutants. While participation in the new exchange (which opens for business in 2008) is strictly voluntary—companies can buy and sell so-called environmental options only if it makes sense for them—the mechanism could be used in the future if reducing emissions becomes the law, as several bills making their way through Congress now propose.

"Leveraging financial markets is an essential part of addressing environmental challenges such as global warming, and The Green Exchange is the right financial marketplace at the right time," says Andrew Ertel of Evolution Markets. "We’ve identified a set of contracts that address climate change, encourage renewable energy development, and tackle air quality."

While the Green Exchange is loosely based on the four-year-old Chicago Climate Exchange—which accounts for $100 million in carbon trading annually—it will also offer traders the ability to buy and sell emissions that cause smog and acid rain, as well as renewable energy credits. NYMEX hopes that this wider scope, as well as buy-in from financial industry heavyweights including Morgan Stanley and Merrill Lynch Credit Suisse, J.P. Morgan, Merrill Lynch, will make the Green Exchange the de facto standards for emissions trading.

"The Green Exchange will be more than a financial marketplace," adds Ertel. "It will be an engine behind global efforts to improve the environment."